The government is being urged to expand and make the Treasury’s mortgage guarantee scheme permanent and compulsory on home loans above 80% loan-to-value to boost lending to first-time buyers.
The mortgage guarantee scheme, launched last year, aims to increase the supply of 5% deposit mortgages for creditworthy households with government insurance to cover 95% of losses on the portion above 80% loan-to-value (LTV).
But a report by the Tony Blair Institute for Global Change warns there is little incentive for lenders to get involved as the scheme only runs until the end of this year.
Instead, the thinktank suggests permanently applying the guarantee to all high LTV lending and letting private insurers enter the market could unlock lending.
The report, Reforming mortgage finance – How to raise homeownership, also suggests regulations should be amended to exclude long-term fixed rate mortgages from the usual limit of 4.5 times a borrowers’ salary.
Another proposal is that regulators should make clear that they are neutral between short- and long-term fixed-rate mortgages and that advising consumers to choose a long-term fixed-rate mortgage in appropriate circumstances would not constitute mis-selling.
Ian Mulheirn, chief economist at the TBI, said: “Millions of young people have been locked out of the housing market since the financial crisis because policymakers have been barking up the wrong tree.
“In recent years the biggest barrier to home ownership has been restricted lending to first-time buyers. The result has been fewer first-time buyers paying much higher mortgage interest than wealthier borrowers, and more renters trapped paying more in rent than they would for a mortgage.
“We can reconcile financial stability and fair access to home ownership for young people. But doing so needs radical action and for the government to learn lessons from other countries, rather than tinkering with puny existing measures.
“It is time to give generation rent a leg up onto the housing ladder and make home ownership a realistic aspiration rather than a pipe dream.”